ITO 11(1)(2), MUMBAI vs. REALSTONE EXPORTS LTD, THANE

The aforesaid appeals filed by the Revenue and cross objections by the assessee arise out of separate orders passed by the learned Commissioner of Income Tax (Appeals)–18, Mumbai, for the assessment year 2006–07, 2007–08 and 2011–12.

The grounds raided by the Revenue in both the assessment years under appeal are only on the common issue of partial relief granted by the learned Commissioner (Appeals) with regard to estimation of commission income on accommodation entries.

Brief facts are, the assessee company is stated to be engaged in trading in merchandise goods. The returns of income filed for the assessment years under consideration were initially processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received indicating that income chargeable to tax in the aforesaid assessment years have escaped assessment, the Assessing Officer re–opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer found that as per the information received from the 3 Realstone Exports Ltd. Sales Tax Department, Government of Maharashtra, one of the Directors of Utkantha Trading Co., Shri Abhishekh Murarka, which is one of the Group concern, has clearly and categorically stated that neither the assessee nor the other group concerns are actually carrying on any purchase or sale transaction in merchandise or shares, but are only providing accommodation entries / bills on receipt of commission. On the basis of such statement available, which was also confronted to the assessee, the Assessing Officer called upon the assessee to explain as to why books of account being unreliable should not be rejected and the transactions relating to sale of goods / shares should not be treated as non–genuine and commission income should not be estimated on the purchase and sale turnover shown in the accounts. Though, the assessee furnished its explanation claiming that the transactions are genuine, however, not being satisfied with the correctness of assessee’s explanation and in the absence of any credible evidence, as alleged by the Assessing Officer, he treated the entire transaction as non–genuine. After rejecting the books of account by invoking the provisions of section 145(3) of the Act, the Assessing Officer proceeded to estimate the commission income @ 1% of both purchase and sale turnover shown by the assessee in all the assessment years under appeal. Being aggrieved with the assessment orders so passed, the assessee preferred appeals before the first appellate authority.

After considering the submissions of the assessee and other material on record, though, learned Commissioner (Appeals) agreed with the Assessing Officer that the assessee has not carried out any genuine purchase and sale transaction and is only an entry provider, however, he restricted the rate of commission to 0.15%, that too, either on purchase or on sales turnover. Being aggrieved with the aforesaid decision of learned Commissioner (Appeals), the Revenue is in appeal before the Tribunal.

The learned Departmental Representative, Smt. Jyothilaxmi Nayak submitted, when it is proved on record that the assessee is merely an entry provider and has not carried out any genuine transaction, the estimation of commission @ 1% of the total turnover is fair and reasonable and the assessee does not deserve any leniency considering the nature of activity carried on by it. Further, she submitted, the Tribunal in assessee’s own case while considering identical nature of dispute in assessment year 2010–11, vide ITA no. 3444/Mum./2014, dated 3rd October 2017, has upheld the decision of the Departmental Authorities in estimating the commission income @ 1% of the total turnover. She also furnished a copy of the order passed by the Tribunal.

The learned Authorised Representative strongly relied upon the observations of the learned Commissioner (Appeals). Further, though, he submitted that submissions would be filed in written form, but till date no such submission has been filed. As could be seen from the facts on record as well as the discussions made by the Assessing Officer and learned Commissioner (Appeals) in their respective orders, the fact that the assessee is an entry provider is clearly established. Therefore, the so called purchase and sale transactions in fabric / shares cannot be accepted as genuine. In fact, learned Commissioner (Appeals) has also accepted the aforesaid factual position while interfering only with regard to rate of commission. Therefore, the contention of the assessee that it is carrying on genuine purchase and sale transaction is unacceptable. Thus, in these circumstances, the assessee being engaged in providing accommodation bills / entries, estimation of commission income on the basis of its turnover is just and proper. Therefore, the only issue which needs to be decided is what is the reasonable rate of commission which can be estimated on such accommodation transaction and whether such commission can be charged on both purchase and sale turnover shown by the assessee. It is evident, while the Assessing Officer has charged commission @ 1% on both purchase and sale turnover, learned Commissioner (Appeals) has reduced the rate of commission to 0.15% and that too only on one of the transactions i.e., either purchase or sale. Notably, while

In the result, appeals are allowed for statistical purposes.

Having carefully considered the cause of delay shown by the assessee, we are of the view that it is not at all acceptable and is only a cooked–up story to tide over the delay in filing the cross objections. Firstly, though, it has been stated that the earlier Counsel and the assessee were carrying impression that the second opinion would be obtained by either the earlier Counsel or the assessee, however, to substantiate such claim, no affidavit of the earlier Counsel or the assessee have been filed. Moreover, even accepting that there was such confusion, it cannot lead to such inordinate delay of 307 days. Therefore, in our considered opinion, the cause for delay shown by the assessee is neither convincing nor the explanation of the assessee is satisfactory. Further, it is relevant to observe, perusal of the cross

In the result, cross objections are dismissed in limine.

To sum up, Revenue’s appeals are allowed for statistical purposes and cross objections are dismissed. Order pronounced through circulation in the notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 02.06.2020.